If investors believed the euro-mess were a threat to the global financial system, you’d expect the price of gold – the ultimate crisis hedge – to be probing new highs about now. Instead, the yellow metal is being sold off, and funds are flowing torrentially into US dollar Treasury assets, strengthening the US dollar. Nearby contract gold futures dropped another 4.4% last Thursday, the largest percentage decline in 14 months. To date, the precious metal has retreated 12% from its December high of US$1,214 per ounce.

Crude oil likewise dropped below US$70 per barrel as huge inventories continue to hang over the market (95 days’ supply compared with an average of 86 days), OPEC capacity increases, and demand remains soft. Oil futures are down nearly 8% this year, while copper, often referred to as “Dr. Copper” for its predictive value, is down 14%, also on rising stockpiles with no concomitant increase in demand.

Some analysts believe that commodities are in fact significantly overpriced and poised for a major correction. The entry of exchange-traded funds using derivatives as proxies for commodity holdings have changed the commodity landscape. ETF money is intensely volatile in a sector where extreme volatility is already the watchword. If very large long institutional positions are liquidated (say by one or two hedge funds), a momentum-driven correction could result as hot money charges away from commodity ETFs.

For aggressive options traders, this could present a profit opportunity with bearish positions in large, liquid, optionable commodity-based exchange-traded funds. This could include Canadian-based ETFs like the iShares CDN Materials Sector Index Fund (TSX: XMA, recent price $16.93). Look at buying the March 16 puts at 40 cents.

You might also consider hedging your bets with larger mining companies, especially copper miners, like Teck Resources Ltd. (TSX: TCK.A, recent price $34.20).

With TECK, which has some rich option premiums, you might want to look at writing the May 34 covered calls at $3.80 (assuming you own the stock).

If you don’t look at Teck bear call spreads, where you write the March 34 calls at $2.70 and buy the March 42 calls at 45 cents. Net credit for this trade is $2.25 per share, which you will keep if Teck is below $34 at the March expiration.